It's hard to imagine a client being so unhappy that they're ready to sue, but it's an unfortunate reality for many small-business owners. Say, for example, you're consulting on a major advertising campaign for a client. Production costs are way over budget, so you have to scale back. Your client is understandably dissatisfied and threatens to sue, saying you failed to deliver your promised services.

The client may simply assume that's the only way they can recoup their losses. They don't even have to be in the right. Lots of lawsuits are filed because one party believes the other acted unprofessionally. Either way, you need to defend your business, and that starts with making a Professional Liability Insurance claim. This step-by-step guide can help you out.

In the example above, the client only threatens to sue. That still warrants a call to your insurance agent or provider immediately. The sooner your insurer knows about a potential claim, the easier it is to investigate and resolve. Timeliness is important because most Professional Liability policies include…

A duty to defend provision. This means your insurance carrier will find a lawyer who specializes in professional liability lawsuits to provide you with legal counsel.

Notification instructions. Your policy should state how quickly you must contact the carrier in the event of a complaint. If you don't, your benefits could be voided.

Review your Professional Liability Insurance (sometimes called Errors & Omissions Insurance) even if you're already familiar with what your policy covers. For a quick recap, check out your certificate of liability insurance. You'll need the information handy once you begin working with your insurance agent or carrier.

Your carrier will need to know…

Your name.

Current contact information.

Business name.

Policy number and type of coverage.

Description of the claim.

Your insurance carrier will also need to know when you first learned about the potential claim. Again, timing matters. If you wait for a formal complaint from the client, it could affect the terms of your coverage.

In case you do have to make a claim, be prepared to pay your Professional Liability policy's deductible.

Professional Liability Claim Step 3: Ask questions.

Prepare a list of questions and concerns to ask your insurance carrier. For example:

Are there time constraints for filing the claim?

What does the policy cover?

Is this particular incident covered?

What happens if a lawsuit is filed?

What's the best way to get in touch with the agent working on your claim?

When should you expect a follow-up?

If you're still confused, ask for clarification or consult with a lawyer.

Professional Liability Claim Step 4: Keep detailed records.

Detailed records are solid evidence of your activities and transactions. Make a note when you contacted the insurance carrier and what you discussed. Write down any interactions you have with the disgruntled client, including their first visit and the subsequent visit with the threat to sue. Document all communication between:

You and the client.

You and your insurer.

That includes conversations that took place in person, on the phone, or over email. Every interaction can potentially support your defense. Get things in writing. And if your insurer requests copies of anything, keep a copy for yourself, too.

Professional Liability Claim Step 5: Respond to the claim.

There are several ways you may respond to a lawsuit, but listen to your insurance carrier. Usually, your options are to:

Answer the claim. You either admit to or deny the allegations of the claim and explain why.

Try to dismiss the claim. If the lawsuit is frivolous, your lawyer may seek to have it dismissed.

Countersue. You can sue the client back. If you go this route, the complaint process starts over. If the suits go to trial, both cases will be tried as one.

Settle the claim. To avoid a drawn-out, costly litigation process, your insurer may want you to reach a settlement out of court with the client.

Do nothing. If the client hasn't actually filed a lawsuit, your insurance carrier might recommend this course of action until a formal complaint is made.

Professional Liability Claim Step 6: Relax.

If you've followed all these steps, you're in good shape. If and when the client makes a formal complaint, you'll have taken the steps to deal with a potential lawsuit. Plus, your Professional Liability Insurance offers you financial protection.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact a licensed insurance agent or attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create a relationship between Insureon and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm.